Google’s Interest Based Advertising

Last week, Google launched beta-testing for interest based advertising on the content network. While the concept of interest-based or behavioral targeted advertising is nothing new, concerns from privacy advocates have always served to be an obstacle to a smooth transition.

With more than 30 companies currently utilizing behavioral targeting, including Yahoo and MSN, Google has been careful to consider the interests and resistance from privacy advocates.

When a visitor browses a publisher’s site using AdSense, a cookie, using a unique ID number, is stored in the user’s browser. This number is then associated with an interest category that best fits the user. As a result, Google does not collect any personal information about the user.

According to Google’s about section for the ads preferences manager, this same user will be able to edit the interest categories associated with their browser, in addition to opting out entirely of any interest-based advertising.

For users that remain opted in, Google’s objective is to deliver more relevant text and display ads based on the associated interest categories.

In turn, advertisers have greater targeting capabilities with the potential to increase conversion rates, which leads to increased revenues for publishers on the content network.

My first thoughts, how broad are these categories? Clearly we’re not talking Maslow’s hierarchy of needs, but let’s say I visit ESPN daily (which I do). So I’ve been categorized as a sports fan.

What type of a sports fan? Basketball? Football? Baseball? Just because I visit ESPN often does not mean I’m an MLB or NASCAR fan (I’m borderline…not really). Maybe it’s in Google’s best interest not to allow advertisers to target too well?

While there are far too many factors to consider, let’s say Google’s content network averaged 500,000,000 clicks last year and generated an average of $0.15 per click in revenue. Now let’s say Google’s interest based advertising increases click volume by 7% in 2009. Now let’s assume advertisers are willing to pay more with this improved level of targeting, therefore Google’s revenue per click jumps to $0.19. (Is anybody still with me or did you bounce once the math started?) With the above estimated growth factors, Google’s revenue from the content network would increase 35%.

My theory is that Google built out a growth formula to estimate revenue based on various levels of category targeting (sports fan vs. basketball fan vs. college basketball fan). Google then calculated the degree of privacy advocate resistance for each level of targeting. The final decision was then to determine where revenue outweighed potential privacy concerns.

Whether you’re a professional web surfer, digital marketer or publisher, what are your thoughts on Google’s interest based advertising beta?